EU Internal Market Commissioner Barnier submitted a proposal to the European Commission on giving shareholders a right to vote on the remuneration of board members (“say on pay”).

Although the proposal is not publicly available, press reports and statements by Barnier suggest that the proposal includes two main items upon which shareholders should have a right to vote: 1) the maximum ratio of variable to fixed pay of directors and 2) the maximum ratio of the highest to the lowest paid workers in a company. The proposal also supposedly includes special rules for banks, e.g. disclosure of remuneration for the highest paid employees as well as directors. It is unclear if the proposal is for a binding or an advisory vote for shareholders.

Trade unions are generally in favor of “say on pay”, one reason being that worker representatives on pension funds can encourage these funds to vote in favor of sustainable remuneration policies. However, in companies where worker representatives have strong board level representation (and therefore a direct influence on management pay), this vote should be advisory.